Pure Play Clean Energy ETF Debuts

Today ALPS launched a thematic ETF that targets renewable energy. The ALPS Clean Energy ETF (ACES) invests in stocks issued by U.S. and Canadian companies that are primarily involved in the clean energy space.

The fund comes with an expense ratio of 0.65% and lists on the Cboe BZX exchange; Cboe Global Markets is the parent company of ETF.com.

Methodology

ACES tracks the CIBC Atlantic Trust Clean Energy Index, which covers the stocks of U.S. and Canadian companies involved in the renewable energy and clean technology spaces as well as related areas. While the renewable energy space involves alternate sources of energy ranging from hydroelectric to biofuels and solar energy, the clean technology category covers electric vehicles, the technology behind the batteries and fuel cells that power them, and other business lines stemming from energy efficiency such as LED and smart grid technology, according to the prospectus.

Eligible companies can have market capitalizations as small as $100 million but must also meet liquidity requirements. The methodology uses a modified market capitalization weighting approach, with individual companies capped at 5% of the total weight of the index. Reconstitutions and rebalancings occur on a quarterly basis, the document says.

As of late May, ACES’ underlying index included 32 stocks.

Fund In Context

On one level, the new ETF does not cover any new ground. Clean energy ETFs have been around for well over a decade, with ACES’ closest competitor shaping up to be the $93.5 million First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN), which solely targets U.S. companies and comes with an expense ratio of 0.60%. But it does have some differentiating qualities.

Perhaps most importantly, ACES is designed to be a pure-play fund that does not hold companies for whom clean energy is just a small portion of their portfolios.

However, most clean energy ETFs are global in scope. Lance Marr, CFA, senior vice president and senior analyst at CIBC NTC, points out that the fund’s focus on Canada and the U.S. minimizes the foreign currency and sovereignty issues that can crop up with global clean energy funds.

That said, many might point out that the current U.S. administration’s focus on supporting coal and nuclear energy makes the country seem like a hostile environment for clean energy, but that’s not quite the case.

Policy Vs. Economics

“Actual policy response from the current administration has not been detrimental to the renewable energy space, probably because it’s one of the fastest job creators in the country,” said Jerimiah Booream, CFA, vice president and analyst at CIBC NTC.

“It’s not about policy anymore—it’s about economics. We’ve basically reached that point or are about to reach that point in the more emerging technologies where the policy doesn’t matter because the investments are going to happen regardless,” he added.

Further, according to Marr, the federal stance on renewable energy is not the only one that matters.

“The perception that the Feds are abandoning support of clean energy has, if anything, galvanized support at the state and local level,” he noted.